Exam 24: The Influence of Monetary and Fiscal Policy on Aggregate Demand

In principle, the government could increase the money supply or increase government expenditures to try to offset the effects of a wave of pessimism about the future of the economy.

If net exports fall $40 billion, the MPC is 9/11, and there is a multiplier effect but no crowding out and no investment accelerator, then

In a certain economy, when income is $400, consumer spending is $325. The value of the multiplier for this economy is 3.33. It follows that, when income is $450, consumer spending is

Which of the following policy alternatives would be an appropriate response to a sharp increase in investment spending, assuming policymakers want to stabilize output?

Which among the following assets is the most liquid?

According to the theory of liquidity preference, the interest rate adjusts to balance the supply of, and demand for, loanable funds.

Suppose that the government increases expenditures by $150 billion while increasing taxes by $150 billion. Suppose that the MPC is .80 and that there are no crowding out or accelerator effects. What is the combined effect of these changes? Why is the combined change not equal to zero?

When the Federal Reserve increases the Federal Funds target rate, it achieves this target by

Scenario 34-2. The following facts apply to a small, imaginary economy. • Consumption spending is $6,720 when income is $8,000. • Consumption spending is $7,040 when income is $8,500. -Refer to Scenario 34-2. The marginal propensity to consume for this economy is

When the Fed announces a target for the federal funds rate, it essentially accommodates the day-to-day fluctuations in money demand by adjusting the money supply accordingly.

Unemployment insurance benefits are an example of .

Which of the following are effects of an increase in government spending financed by a tax increase?

The wealth-effect notes that a _____ price level increases the real value of households' wealth. The larger real wealth _____ the quantity of goods and services demanded.

Which of the following shifts aggregate demand to the right?

An increase in the MPC

Figure 34-14 -Refer to Figure 34-14. Households' desired money holdings are given by MD₁. If the current rate of interest is r₃, then there is excess _____. Households will _____ interest-earning assets, which causes the interest rate to _____.

If the Federal Reserve increases the money supply, then initially people want to

The theory of liquidity preference was developed by Irving Fisher.

Which of the following events would shift money demand to the left?

Figure 34-8 -Refer to Figure 34-8. An increase in government purchases will